UK Businesses Increase FX Hedging Ahead of Brexit

As UK businesses prepare for Brexit, small firms are managing their FX risk more and more as they look to increase trade internationally, and exporters forecast increased growth in FX turnover, according to a new report from East and Partners released this week.

Following interviews with 2,211 UK corporates, East and Partners has revealed that 25% of micro businesses and over 40% of SMEs used FX forwards in the second half of 2017, an increase of 16% and 15%, respectively, over the last six months. The report also shows that larger businesses are also using hedging options on a more regular basis, with nearly half indicating their use.

“Awareness and understanding around the benefits of FX risk management solutions has clearly hit home with UK small business, leading to record highs in its usage,” says Simon Kleine, business lead at East and Partners Europe.

Barclays, HSBC and Citi are the dominant players in the FX market for UK corporates with turnover of £100 million, the report shows, although it also indicates that challenger banks such as Bank of China and Santander, along with non-banks such as Monex, Saxo and Western Union, also saw continued growth in their FX risk management businesses in the second half of 2017.

The report found that for the second half of 2017, exporters are forecasting increased growth in their FX turnover in the next 12 months, and all businesses are forecasting an increase in the percentage of their FX turnover that they hedge, with a market-wide increase of more than 4%.

The data from East shows that 8% of these UK businesses expect to use less EUR, but that 15% expect to use more non-USD currency, suggesting that businesses are increasingly looking to trade with new international markets.

“UK business is obviously looking beyond Brexit and at the opportunity presented. They’re focusing on growth but, importantly, are doing so in a balanced way taking a measured, sustainable and more risk averse approach,” says Kleine.